In re Colorado Lime Company

• Decision Date: 28 April 1969
• Docket Number: No. 68-B-3719.,68-B-3719.
• Citation: 298 F. Supp. 1053
• Parties: In the Matter of COLORADO LIME COMPANY, Inc., Alleged Bankrupt. PETE LIEN & SONS, INC., Petitioning Creditor, v. COLORADO LIME COMPANY, Inc., Respondent.
• Court: U.S. District Court — District of Colorado

298 F. Supp. 1053

In the Matter of COLORADO LIME COMPANY, Inc., Alleged Bankrupt PETE LIEN & SONS, INC., Petitioning Creditor, v. COLORADO LIME COMPANY, Inc., Respondent.

No. 68-B-3719.

United States District Court D. Colorado.

April 28, 1969.

Holland & Hart, by Mr. John S. Castellano, Denver, Colo., for petitioning creditor.

Leslie A. Gross, Denver, Colo., for respondent.

MEMORANDUM OPINION AND ORDER

WILLIAM E. DOYLE, District Judge.

On November 22, 1968, Pete Lien & Sons, Inc., as the sole petitioning creditor, filed a petition to have the respondent, Colorado Lime Company, adjudicated an involuntary bankrupt. Petitioner alleged that it is a creditor of Colorado Lime Company in an amount of $500.00 in excess of any security and that Colorado Lime had less than twelve creditors. Respondent in its answer specifically denied that its creditors were less than twelve in number on the date the petition was filed and attached a list of twenty-five creditors with their addresses and a brief statement of the nature of their claims and the amounts thereof.¹ In accordance with Section 59(d) of the Bankruptcy Act, notice of the pendency of the petition was sent to all known creditors and they were given until February 3, 1969, to join in the creditor's petition. No other creditors have joined in the petition and, therefore, Pete Lien & Sons, Inc., stands alone as the sole petitioning creditor.

Although other issues have been argued, we need only consider the threshold issue of jurisdiction to entertain the petition. Proper notices have been dispatched, there has been a hearing in open court, briefs have been filed and the matter now stands submitted.

Section 59(b) of the Bankruptcy Act provides that three or more creditors may file a petition to have a person adjudicated an involuntary bankrupt, but that if all of the creditors of the alleged bankrupt are less than twelve in number, then one or more creditors may file the petition. The sole petitioning creditor is Pete Lien & Sons, Inc.; no other creditors have joined in the proceeding. If, therefore, Colorado Lime Company had more than eleven creditors on November 22, 1968, the petition must be dismissed for lack of jurisdiction.

Section 59(e) of the Bankruptcy Act furnishes the guidelines to be used in determining the number of creditors under section 59(b). Section 59(e) provides:

"In computing the number of creditors of a bankrupt for the purpose of determining how many creditors must join in the petition, there shall not be counted (1) such creditors as were employed by the bankrupt at the time of the filing of the petition; (2) creditors who are relatives of the bankrupt or, if the bankrupt is a corporation, creditors who are stockholders or members, officers or members of the board of directors or trustees or of other similar controlling bodies of such bankrupt corporation; (3) creditors who have participated, directly or indirectly, in the act of bankruptcy charged in the petition; (4) secured creditors whose claims are fully secured; and (5) creditors who have received preferences, liens, or transfers void or voidable under this Act."

Both parties agree that eight of the twenty-five creditors listed in the answer are not to be counted under § 59(e),² thus leaving seventeen creditors for the consideration of the Court.

Petitioner contends that eight of the creditors³ whose claims are less than $100.00 should not be counted in determining the number of creditors under § 59(b) because these are small claims which have been incurred for current expenses. Section 59(e) specifically enumerates the creditors which are not to be counted in computing the number of creditors under § 59(b), and there is neither express, nor implied, exclusion of creditors whose claims are for small current expenses. Petitioner argues, however, that the courts have added an additional exclusion to those contained in § 59(e). In essence this is that creditors who have small claims for current expenses are not to be counted. Petitioner's contention rests on the early case of In re Blount, 142 F. 263 (E.D. Ark.1906), and three subsequent cases which have followed the rationale of the Blount decision. Security Bank & Trust Co. v. Tarlton, 294 F. 698 (W.D.Tenn. 1923); In re Branche, 275 F. 555 (N.D. N.Y.1921); In re Burg, 245 F. 173 (N.D.Tex.1917). The reasoning of these cases is that a court will not aid the implementation of schemes or artifices to avoid the letter and spirit of the involuntary feature of the Bankruptcy Act. The type of scheme or artifice condemned by these cases is: A debtor conveys all his property, with the avowed intention of preferring all of his creditors except one or two, and then he avoids involuntary bankruptcy by creating eleven or more creditors by purchasing small items and having them charged on a monthly account. By paying these monthly accounts promptly each month, after additional purchases have been made and charged, the debtor would always have a number of creditors ready to be used to defeat an involuntary bankruptcy petition. It is...